Obama’s statement, an attention grabber, was a piece of rhetorical overreach. Elsewhere, the president made clear his concern was tax rates, not tax amounts. Ordinary incomes (such as salaries) are taxed from 10 percent to as high as 35 percent (for amounts in excess of $388,350). But taxes on capital gains (the likely source of Buffet’s income) are usually around 15 percent.
Is that as bad as Obama makes it out to be?
Since we haven’t seen Bosanek and Buffett’s returns, it’s not even clear she paid a higher rate of taxes than her boss. An analysis prepared by the Tax Policy Center, a think tank, pointed out that the top 20 percent of income earners pay, on average, 25.5 percent of their incomes to the feds (including income and payroll taxes). Those in the middle bracket average 14 percent. In other words, if Bosanek indeed had paid a higher rate, she would be the exception, not the rule.
Note to Obama speechwriters: 25 is bigger than 14.
At the heart of Obama’s disgruntlement is that the government taxes capital gains at a lower rate than ordinary income. Even the rich get treated differently. A professional hockey player making $10 million a year would find most of his income taxed at 35 percent. An investor making the same amount would pay just 15 percent. Rather than shunning a visit to the White House, perhaps Tim Thomas should be protesting outside Mitt Romney’s home in Belmont.
Those who support lower rates for capital gains argue that those gains are derived from corporate profits, which are themselves already subject to corporate income taxes. The lower rate, they say, is an offset for what amounts to double taxation. More importantly - and this was an argument voiced frequently by Republicans and Democrats such as the late Paul Tsongas - the lower tax rate encourages people to make risky investments, which in turn spur the growth of the economy.
